OFT report into fuel pricing competition

No relief for frustration on the forecourt

The OFT sees the fuel pricing market as competitive but this clashes with drivers’ frustration on the forecourts

UK drivers will be bitterly disappointed that the Office of Fair Trading has failed to address their frustration with prices on the forecourt. However, it comes as little surprise to the AA that the OFT would see the market as competitive – if so, there is no reason not to publish petrol and diesel wholesale prices.

Price-matching across towns that have left supermarket petrol prices up to 5p a litre more expensive compared to down the road have angered motorists, local politicians and MPs.

Wholesale price surges that shot up 10p a litre and collapsed just as quickly appeared at the pump in days but took weeks to fall away.

If fuel pricing is fair and competitive, there is no reason not to publish petrol and diesel wholesale prices to prove the point and reassure motorists

Edmund King, AA president

Comment

“The OFT sees the fuel pricing market as competitive but this clashes with drivers’ frustration on the forecourts. If fuel pricing is fair and competitive, there is no reason not to publish petrol and diesel wholesale prices to prove the point and reassure motorists,” says Edmund King, the AA’s president.

“Since 2005, we have campaigned for the wholesale price to be made transparent so that drivers can see whether pump price movements are a fair reflection of costs. We continue to hold that view and will push hard for that to happen.

“The OFT are not ruling out action at local level and its call for motorway fuel price signs could bring more competition. But drivers deserve a better explanation of why prices fluctuate wildly and who is driving this - from the pump back to the well.”

Summary of OFT findings

Differences in pump prices between neighbouring towns - The OFT found that petrol and diesel tend to be cheaper in local areas that have a greater number of local retailers, in particular areas where there are supermarket forecourts.

Differences between urban and rural areas - The OFT's analysis found that in August 2012, for example, petrol was around 1.9ppl more expensive and diesel around 1.7ppl more expensive in rural areas than in urban areas. There appear to be a number of factors which account for these differences including lower throughputs per forecourt, fewer competitors (including supermarkets) within a local area, and higher transport costs for getting fuel to rural forecourts.

Independent dealers' ability to compete fairly in the market - The OFT examined claims that supermarkets' and major oil companies' practices may be making it more difficult for independent dealers to compete with them. However, the OFT has not, to date, received evidence of any anti-competitive practices being used against independent dealers that might lead it to take enforcement action. The OFT will continue to consider any credible evidence it receives and consider taking action where practices appear to breach competition law.

'Rocket and feather' pricing - The OFT investigated the widely held perception that pump prices rise quickly when the wholesale price goes up but fall more slowly when it drops. It analysed the relationship between retail and wholesale prices at both a national and local market level, as well as the relationship between crude oil prices and wholesale prices at a national level, but found very limited evidence to support such claims.

The OFT has also found that fuel is often significantly more expensive at motorway service stations. In August 2012, for example, prices were on average 7.5ppl higher for petrol and 8.3ppl higher for diesel than at other UK forecourts. While these differences may be explained to some extent by the higher costs associated with running motorway forecourts, the OFT is concerned that drivers are not able to view prices until they have pulled into the service station. It has therefore asked the Department for Transport to consider introducing new road signs that would display service station petrol and diesel prices for motorway drivers.